Jonathan Klarfeld, Ropes & Gray antitrust partner, discusses key takeaways and likely impacts of the Federal Trade Commission's recent divestiture study.
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The FTC's divestiture study is a rehash of a report that they had done about 20 years ago, and the idea behind the study is to take a look at the way that remedies and divestitures are working in mergers. A lot of the FTC's enforcement program is done through divestitures and consents and not necessarily through the relatively high profile court cases, and what they don't know for sure is whether or not those divestitures are working. So one of the things they have doubled back to do is take a look at the period in 2006-2012 – is the one that's at issue here, and to take a look at how those divestitures went.
The key takeaway from the study isn't terribly surprising, which is that the divestitures of an ongoing business are the ones that are the most successful. They found in the study that when an ongoing business was being divested, they were 100% successful. But not all divestitures obviously are of an ongoing business – they're often of a package of assets and those still ended up pretty successful.
One of the big areas they are going to pay more focus on is the financial backing of the divestiture buyer. They're not going to accept at face value that everything is going to go well on the backside and that if a small change in the market happens, that that's just going to sink the model.
The additional scrutiny that we're likely to see as a result of the study and some of the high profile divestiture failures recently could slow things down a little bit, at least in the less routinized type of divestitures. I think there is a pretty comfortable pathway for certain types of divestitures, whether it's supermarkets or generic pharmaceutical divestitures. But in anything, let's say, more unique, I think it's really going to get the tires kicked probably more extensively than we've seen in recent memory.
I think the main way that the study is helpful for practitioners and for advising clients is to get a little bit more insight into the things that the agency's thinking about in terms of putting together divestitures and not just putting together the asset packages for that divestiture, but also in the way they're going to go about vetting buyers. They do put out statements from time to time discussing what they are thinking about and the things that they think are important. But also, the outcomes of these kinds of studies are going to inform the way they implement those kinds of guidelines and I think we're getting a better sense of that today.